India's readymade garment exports stitch recovery, helped by tax break

Readymade garment (RMG) exports are picking up after a slump lasting almost two years, buoyed by the government increasing tax rebate and helping the sector with other measures.

Garment exports rose by nearly 14.05 per cent to $1.528 billion in May 2019 compared to $1.339 billion in the same month last year. Experts said Indian products are costlier by 10-15 per cent, but buyers are still interested to source from the country. 

Exports decreased year-on-year in the last two financial years, but the industry is now expected to grow by 8-10 per cent. 

In 2016-17, the total garment export was worth $17.361 billion. After the introduction of GST and demonetisation, Made-in-India products became costlier and exports started declining. In 2018-19, exports dropped by 3.43 per cent in to $16.14 billion from $16.71 billion in 2017-18.

Identifying issues such as low incentives and cost pressures with the industry, the government increased Rebate of State and Central Taxes and Levies (RoSCTL) by 3.2 per cent for some items and 4.5 per cent for the rest. The government's steps have helped export units, especially MSMEs, come out of downturn, said Raja M Shanmugham, president of Tirupur Exporters Association.

He said in the last six months the average export growth was about 31.15 per cent over the corresponding period in 2017-18 for Tirupur. Government data shows from October 2018, exports increased by 12 per cent.

“I feel that we are finally turning the corner after stagnancy or slight de-growth. The government support has gone up. Bangladesh is becoming expensive and Vietnam is showing signs of reaching the peak of its capacity,” said Rahul Mehta, president of Mumbai-based Clothing Manufacturers Association of India.

China's decision to exit from textile sector, labour in Bangladesh becoming costly, and Vietnam's industry hitting a plateau have helped Indian exports.

Some of the recent reforms including reduction in costs delivered by a refund of the Central and State taxes, new benefits under the Merchandise Exports from India Scheme (MEIS) and renewed 2 per cent duty drawbacks made the industry more competitive. The other advantages for India is design, value added and skill, which no other countries are close to.

Mehta agrees that still Made-in-India products are costlier by 10-12 per cent, in addition to duty concessions which other competing countries enjoy to the tune of 10 per cent. "Today it is not about the cost alone, customers looking for quality and speedy delivery, if we can improve this, then we can once again emerge as strong competitor."

The government has little scope to give more sops, but reforms in  GST, banking and labour can help the industry. If the refunds processes are taken care, it will be great benefit for the industry, as there is a struggle for working capital at present, said Mehta.